By Jacco Moison, FMA Head of Audit and Financial Reporting
First published by NBR.
New Zealand’s shortage of experienced auditors is having an impact on the timely completion of audited financial information for investors and stakeholders.
Local audit firms typically rely on secondments and immigration to fill gaps in the skilled auditor space. This has been almost impossible during the COVID-19 border closures.
The situation has been exacerbated by challenges in attracting and retaining talent. Auditors with public accounting experience continue to follow the usual career trajectory of moving overseas or into the corporate world. Meanwhile new graduates are finding a broader range of options in the tight labour market, especially with the current lack of international students.
Research from accounting industry body CAANZ found that in October last year there were up to 260 vacancies across the 13 major audit providers in New Zealand. The situation is similar overseas – including Australia, where the Australian Financial Review reported the number of registered auditors has dropped by more than 1000 – a fifth of their workforce - over the past four years.
Steps have been taken to alleviate the pressure of the shortage locally, with the Financial Markets Authority (FMA) granting temporary reporting deadline extensions for some businesses, and the government announcing a border exception late last year to allow 180 external auditors into the country.
Weathering the shortage
The audit of public companies remains mandated by law, and the FMA is focused on ensuring that the quality of information provided to investors is not compromised. Therefore, audit firms need to ensure they are able to complete high-quality audits for all their clients.
In a constrained market, audit firms may need to make choices about what work to take on, and what clients to drop – which are more likely to be those that deliver poor information that causes delays or additional unplanned work.
Directors and management can minimise the risk of this by having a robust plan that ensures all required information is available for their auditors in a timely manner. If any external accounting advice from another accounting firm is required, this should be identified and dealt with early, to ensure timeframes of the year-end audit can be met.
Directors should also be willing to pay a reasonable fee to ensure their auditor has sufficient time and resources to perform a compliant audit, rather than focusing overly on driving down the price.
When making choices about what work to take on, we have seen audit firms critically assessing the quality of their clients, in terms of their attitude towards the audit, working relationship with the firm and the standard of information provided, in comparison to the fees received.
What’s the outlook?
Professional services firms with audit functions have continued to grow both in revenue and staff numbers, even during the pandemic. Based on this it seems the problem isn’t attracting staff, just attracting auditors.
As the pandemic eases, we are just as likely to lose local auditors to overseas opportunities as we are to gain auditors from offshore. So the shortage looks likely to be here for some time, and solving it will require a collective effort by the audit profession.
From a regulation perspective, there is a risk that the shortage will impair audit quality over time if excessive workloads continue and knowledge gaps are not filled. It is essential that firms focus not only on filling vacancies, but on luring the right talent.
This may involve challenging the traditional pathways to becoming an auditor, and accommodating flexibility in professional development and career progression. Firms will also have to consider how to seek out specific skill sets, such as expertise in technology, and science in relation to developments in reporting climate-related disclosure.
The FMA is also considering how to reduce hurdles for overseas professionals to become licensed auditors when relocating to New Zealand.
Making the profession more attractive will be a key contributor to a sustainable audit profession. A recent CAANZ discussion document, Attracting and retaining talent in the audit profession, points to evidence that young auditors are looking for meaning in their work.
Audit firms need to take that on board and do more to promote the crucial role auditors play in maintaining the integrity of our financial system – which now includes new developments such as climate-related disclosure - and the opportunities to work in emerging and innovative sectors.
For our part, the FMA will continue to engage with audit firms, preparers of financial statements and other regulators, to understand how we can help firms without compromising the quality of information, and, in the longer term, work to maintain and improve the profession.
With major growth in retail investing in recent years - seeing more Kiwis entrusting their wealth to the share market – audits of listed companies continue to be delivered.
